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Should Investors Retain Realty Income (O) Stock for Now?
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Realty Income (O - Free Report) is well-poised to benefit from its portfolio comprising major industries that sell essential goods and services amid the rebound in the retail real estate market in the United States.
This retail real estate investment trust derives most of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. Also, O has a diversified portfolio with respect to tenant, industry, geography and property type.
These assure stable revenue generation for the company. For 2023, we estimate total revenues to grow 7.4% year over year.
Realty Income’s accretive buyouts and development initiatives seem encouraging for its external growth. In 2022, it invested $8.9 billion in 1,301 properties and properties under development or expansion. This included properties in the United States and Europe.
Recently, the company signed a definitive agreement with EG Group to acquire up to 415 single-tenant convenience store properties in the United States. The buyout is expected to close in second-quarter 2023, subject to various customary closing conditions.
Realty Income anticipates incurring more than $5 billion in acquisitions in 2023.
Moreover, O’s capital-recycling efforts bode well for growth and relieve the pressure off its balance sheet.
On the balance sheet front, the company exited 2022 with nearly $1.7 billion of liquidity, net debt to annualized pro forma adjusted EBITDAre of 5.3X and fixed charge coverage of 5.2X. Further, its investment-grade credit ratings of A- (Stable) and A3 (Stable) from Standard & Poor’s and Moody’s, respectively, render it favorable access to the debt market.
With a well-laddered debt-maturity schedule and enough financial flexibility, O is well-positioned to capitalize on long-term growth opportunities.
Solid dividend payouts are the biggest enticements for REIT shareholders, and Realty Income remains committed to that. In March 2023, “The Monthly Dividend Company” increased its monthly cash dividend on its common stock, marking the 120th dividend increase since its NYSE listing in 1994.
We expect the company’s dividend rate to be sustainable, given its solid operating platform, our adjusted funds from operations (AFFO) growth projections of 7.1% for 2023 and a lower debt-to-equity ratio than industry counterparts.
Nonetheless, given the conveniences of online shopping, rising e-commerce adoption is concerning for Realty Income. Also, limited consumers’ willingness to spend due to macroeconomic uncertainty could impair the company’s top-line growth.
A major part of O’s tenant roster comprises single-client properties, which expose it to the risks associated with tenant defaults. This could hurt the company’s rental revenues generated from that property.
Rising interest rates might increase the company's borrowing costs, affecting its ability to purchase or develop real estate. Our estimate for 2023 interest expenses indicates a year-over-year rise of 6.4%.
Shares of this Zacks Rank #3 (Hold) company have gained 7.4% in the past six months compared with the industry’s growth of 15.4%.
The Zacks Consensus Estimate for Regency Centers’ current-year FFO per share is pegged at $4.08.
The Zacks Consensus Estimate for Federal Realty’s ongoing year’s FFO per share is pegged at $6.45.
The Zacks Consensus Estimate for Essential Properties Realty Trust’s 2023 FFO per share is pegged at $1.64.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Should Investors Retain Realty Income (O) Stock for Now?
Realty Income (O - Free Report) is well-poised to benefit from its portfolio comprising major industries that sell essential goods and services amid the rebound in the retail real estate market in the United States.
This retail real estate investment trust derives most of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and/or low-price-point component to their business. Also, O has a diversified portfolio with respect to tenant, industry, geography and property type.
These assure stable revenue generation for the company. For 2023, we estimate total revenues to grow 7.4% year over year.
Realty Income’s accretive buyouts and development initiatives seem encouraging for its external growth. In 2022, it invested $8.9 billion in 1,301 properties and properties under development or expansion. This included properties in the United States and Europe.
Recently, the company signed a definitive agreement with EG Group to acquire up to 415 single-tenant convenience store properties in the United States. The buyout is expected to close in second-quarter 2023, subject to various customary closing conditions.
Realty Income anticipates incurring more than $5 billion in acquisitions in 2023.
Moreover, O’s capital-recycling efforts bode well for growth and relieve the pressure off its balance sheet.
On the balance sheet front, the company exited 2022 with nearly $1.7 billion of liquidity, net debt to annualized pro forma adjusted EBITDAre of 5.3X and fixed charge coverage of 5.2X. Further, its investment-grade credit ratings of A- (Stable) and A3 (Stable) from Standard & Poor’s and Moody’s, respectively, render it favorable access to the debt market.
With a well-laddered debt-maturity schedule and enough financial flexibility, O is well-positioned to capitalize on long-term growth opportunities.
Solid dividend payouts are the biggest enticements for REIT shareholders, and Realty Income remains committed to that. In March 2023, “The Monthly Dividend Company” increased its monthly cash dividend on its common stock, marking the 120th dividend increase since its NYSE listing in 1994.
We expect the company’s dividend rate to be sustainable, given its solid operating platform, our adjusted funds from operations (AFFO) growth projections of 7.1% for 2023 and a lower debt-to-equity ratio than industry counterparts.
Nonetheless, given the conveniences of online shopping, rising e-commerce adoption is concerning for Realty Income. Also, limited consumers’ willingness to spend due to macroeconomic uncertainty could impair the company’s top-line growth.
A major part of O’s tenant roster comprises single-client properties, which expose it to the risks associated with tenant defaults. This could hurt the company’s rental revenues generated from that property.
Rising interest rates might increase the company's borrowing costs, affecting its ability to purchase or develop real estate. Our estimate for 2023 interest expenses indicates a year-over-year rise of 6.4%.
Shares of this Zacks Rank #3 (Hold) company have gained 7.4% in the past six months compared with the industry’s growth of 15.4%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Regency Centers (REG - Free Report) , Federal Realty Investment Trust (FRT - Free Report) and Essential Properties Realty Trust (EPRT - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Regency Centers’ current-year FFO per share is pegged at $4.08.
The Zacks Consensus Estimate for Federal Realty’s ongoing year’s FFO per share is pegged at $6.45.
The Zacks Consensus Estimate for Essential Properties Realty Trust’s 2023 FFO per share is pegged at $1.64.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.